Silicon Valley bank shares tumble after stock sale is launched

Shares of Silicon Valley Bank fell 60 percent on Thursday, the day after it launched a $2.25 billion share sale to shore up its balance sheet as it grapples with declining deposits from tech start-ups.

Shares of SVB Financial Group, the parent company of Silicon Valley Bank, posted their biggest fall ever, wiping $9.6 billion from the banking group’s market capitalization, after it admitted significant losses on the sale of securities while trying to raise liquidity.

SVB said Wednesday that it lost nearly $1.8 billion from the sale of approximately $21 billion in securities, which is about 80 percent of its portfolio of securities marked as available-for-sale.

This drop caused contagion among financial stocks to spread more widely, drawing attention to the potential impact of higher interest rates on net interest income at other banks. The four largest US banks – JPMorgan, Citigroup, Wells Fargo and Bank of America – lost $52.4 billion of their market value in Thursday’s trading.

SVB, the banking partner to half of the technology and life sciences companies backed by US ventures, has suffered a slowdown in venture capital financing, as well as cash burn on many of its clients and losses on investments it made when rates were high. lower levels.

“While the VC deployment tracked our expectations, client cash burn remained high and increased further in February, resulting in lower-than-expected deposits,” CEO Greg Baker told investors Wednesday.

He said that the bank took measures to strengthen its financial position, “because we expect continued high interest rates, pressure on the public and private markets, and high levels of cash burn from our customers while they are investing in their business.”

Chris Kotofsky, an equity analyst at Oppenheimer, said SVB has “cornered itself” because of its high exposure to rising interest rates.

It stems from a decision made at the height of the technology boom to store $91 billion of its deposits in long-term securities such as US Treasuries, which are considered safe but are now worth less than when SVB bought them due to increased Federal Reserve rates.

Kotowski said SVB was “an offbeat” in terms of its vulnerability to rates compared to the rest of the US banking industry.

The US banking industry is suffering $620 billion in unrealized losses on securities holdings as a result of higher interest rates, according to the Federal Deposit Insurance Corporation. Its chairman Martin Gruenberg said on March 6 that unrealized losses on securities had “measurably reduced the reported equity capital in the banking industry”.

Some venture capital firms told the Financial Times that they were concerned about the drop in the value of SVB shares and were advising some of their portfolio companies to consider withdrawing part of their deposits from the lender. Others, however, said they did not give that advice to their portfolio companies.

Shares of the lender continued to drop in after-hours trading, dropping about 20 percent to less than $90 a share.

In the process of raising capital, SVB said it plans to sell $1.25 billion of its common stock to investors and another $500 million of mandatory convertible preference shares, which are less dilutive to existing shareholders.

General Atlantic Private Equity also agreed to buy $500 million of the bank’s common stock in a separate private transaction, which is contingent on completion of the stock offering.

Moody’s downgraded SVB Bank on Wednesday, citing a “significant change” in the bank’s funding and profitability over a short period of time, and indicating a “greater risk tolerance in its financial strategy and risk management” than the agency had previously understood.